The Ethical Content of the Control System and the Importance of Peer Managers Being Good Apples

Abstract

The importance of ethical behavior in organizations is undeniable. This study examines how management control systems can facilitate ethical behaviors and an ethical work climate. We examine the intensity of use of an ethical control system and, hence, our focus is on the system’s content. We conceptualize an ethical control system as one that communicates ethical values and motivates employees to act accordingly. Using data from a sample of German managers the results show that the intensity of use of an ethical control system imposed on department managers decreases their engagement in counterproductive behaviors, which in turn, enhances the ethical work climate of the department. These results are consistent with social learning theory. We also examine a contextual factor, peer manager behavior, and find that this effect is amplified when peers are “good apples,” that is, when they act in ways that exhibit less focus on themselves (i.e., less self-interested behavior). In addition, when peers are “good apples,” a more self-focused ethical work climate results in decreased relative performance. Thus, this study demonstrates that including ethical content in the management control system matters, but so does the existence of “good apple” peer managers.

Keywords: management control systems, levers of control, ethical behavior, ethical work climate, performance

JEL Classification: M41, M49